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Internal development vs subcontracting

Rapid global digitization, especially in the face of the Covid-19 pandemic, has prompted more and more companies to turn to custom software development. To build their digital solutions faster, to ensure high quality and best value for money, many opt to hire outsourced software development teams.

In the US, UK or even Australia, the internal cost of a internal development the team can be huge. Add to that the factor of uncertainty or lack of resources, operational efficiency and technical know-how, and all of this can be good enough reason to reject the idea of internal development. On the other hand, development of outsourcing such development projects can help avoid exorbitant investments. In this case, client organizations pay only for product development and incur no other costs related to operations, technology, or training.

Internal development is most often suited to small businesses where an internal IT department can manage both the support and development of internal information systems. As a business grows, its digitization needs increase. At this stage, IT products are an integral part of the business, which determines its competitive advantage. Does the question arise which one is the best? internal development vs subcontracting?

Process to be outsourced:

  1. Establishment of a long-term project. Short-term developments are usually not outsourced but are implemented using a fixed price model. Long-term projects, such as setting up SAP or another ERP system, are best outsourced to a specialist IT company. The external provider will do everything faster, and its services will be less expensive than the increase in staff, resulting in considerable additional expenses.
  2. Non-essential function. The transfer of the main function is very risky for the company, you can become the hostage of the development of outsourcing business. But ancillary operations are an ideal option for attracting outside specialists.
  3. The final stage of the business process or the entire business process. If the company plans to outsource the development of the software, it must be understood that not only the IT people but also the project manager, the analyst, the tester are involved in the process. In order to have adequate and effective cooperation, these roles must be performed either on the client side or on the side of the outsourcing company.
Outsourcing development

Disadvantages of Outsourcing

Well, like any other strategy, development of outsourcing also has its drawbacks. So, let’s break this down as well.

  1. Lack of control and involvement in the project. This is perhaps the most common problem. When a development of outsourcing business or a specialist cannot be fully involved in a project and feel its peculiarities. When comparing in-house and outsourcing, this particular point will always favor the former. But this problem can be easily avoided by documenting all your requirements, creating milestones and a project charter. This way you can keep track of the work. If something is wrong, you can easily figure it out.
  2. Communication and quality issues. Regardless of the specifics of the contract, you should always stipulate any communication issues up front. Often times, issues arise if your team is in a completely different time zone, doesn’t have a reliable internet connection, and hasn’t identified a preferred method of communication. In addition, quality control is another issue. If you are not getting the quality you expect then what is the benefit of outsourcing.

But again, these problems can easily be avoided by working with a development of outsourcing partner and determine the right communication channels and meeting times.

Programming / development process

Internal development team

Internal development involves having your own team with the necessary IT skills. And everything would be fine, but maintaining such a team often takes a heavy toll on a company’s budget. Although in some cases internal development, in the long run, is cheaper than outsourcing.

Benefits of internal development:

  • Deep involvement, understanding of specificities. An in-house IT specialist knows the intricacies of the business, understands goals and pitfalls, and responds quickly to process changes.
  • Independence from the foreign market. A full-time IT employee understands the internal product well and can adapt to any changes. In theory this means that you gain independence from external contractors, but in practice you may face a number of challenges, which you will read next.
  • Clear communications. The internal team is more likely to have a similar cultural and social background, which simplifies communication.

Disadvantages of internal development:

  • Cost of computer scientists. Finding a good computer scientist, and even with specific skills – a difficult and expensive task. And if the specialist is underutilized, the business will essentially pay for the “downtime”.
  • Employee departure. This is one of the greatest risks of internal development. Firing key specialists can undermine the development process. It will take time to quickly find a replacement.
  • Narrow specialization. Besides the programmers themselves, in order to build your own IT team, you will need to hire developers as QA Engineers, Devops, Managers (this list is not by far complete), and if new tasks appear, a engineer with highly specialized development skills may be required. And again, costly recruitment.

The logistics services market, particularly in the 3PL segment, is experiencing the introduction of increasingly complex and personalized IT systems. Therefore, the solutions created by the logistics providers themselves may be offered in the future to other market players as independent products. The industry is interested in IT tools that are essentially the product of the company – the company learns from its mistakes and offers the market a well thought out solution. Therefore, for a 3PL vendor, the decision to create their own development teams may be justified.

Internal development and development of outsourcing have their advantages and disadvantages. The choice of the best option is always individual and depends on the goals, objectives and resources of a particular company. If it is important to retain the IT functions that determine the main direction of the business and belong to the core competencies of the team, then internal development will be the most suitable solution.